Friday, February 3, 2012

Sheffield United - Blades Rediscovering Their Edge?

Sheffield United have made a promising start to life in League One, as they seek to gain promotion back to the Championship at the first attempt. Although many Blades fans were against the appointment of Danny Wilson as manager, because he previously held a similar role at bitter local rivals Sheffield Wednesday, his experience has helped guide United into the play-off places.

Although the nucleus of last season’s squad has been retained, some key players were sold in the summer, with the likes of Jamie Ward, Mark Yeates and Darius Henderson opting to remain at the higher level. However, others have come to the fore with goals being provided by Welsh international Ched Evans, ably supported by the veteran striker Richard Cresswell and Chris Porter, a new signing from Derby County. The defence has also looked more solid, as Neill Collins has formed an effective partnership with academy graduate Harry Maguire.

Nevertheless, nobody is taking promotion for granted at Bramall Lane, as the club has become accustomed to disappointment over the last few seasons, starting with their relegation from the Premier League after just one season in 2006/07. This came about in controversial circumstances, as West Ham narrowly evaded the drop, even though the East London club breached league rules relating to third party agreements with the signing of influential forward Carlos Tévez.

"Right Said Ched"

Having narrowly missed out on promotion in 2008/09, when they lost the Championship play-off final 1-0 to Burnley, things went from bad to worse, when they were relegated last season to English football’s third tier for the first time since 1988.

At various times, Kevin McCabe, the chairman of Sheffield United PLC, has attributed the club’s decline to ill fortune, complaining that “fate was against us” last season and previously wondering why the “rub of the green” eluded them. Although Napoleon once commented that he would prefer lucky generals to good ones, others might describe Sheffield United’s decline as a textbook example of a failed strategy. Indeed, McCabe himself was moved to personally “apologise to all shareholders and supporters” in the most recent annual report.

There were two elements to McCabe’s grand vision: (a) an ambitious plan to turn Sheffield United into a global force that could be variously described as innovative, unorthodox or plain foolhardy; (b) diversification off the pitch into a number of non-related football activities, such as property development, a new hotel, conferences and events and a health club.

"We need to talk about Kevin"

The first step towards worldwide domination was the appointment of former England captain Bryan Robson as manager in the vitally important first season after relegation to the Championship. Although “Robbo” possessed the requisite high-profile name, his managerial skills were less evident and his brief reign was an unmitigated disaster, as he wasted the club’s best opportunity to bounce straight back, despite the boost of substantial Premier League parachute payments.

Further evidence of the club’s imaginative approach came with the creation of an international network of overseas clubs that, according to McCabe, would “be commercially profitable as well as nurturing the best academies in those countries.” The joint development of young players was known as the “Blades Way”, featuring feeder clubs in China (Chengdu Blades), Hungary (the famous Ferencvaros) and Australia (Central Coast Mariners), as well as partnerships with clubs in Belgium, Brazil, India, the Ivory Coast and the Caribbean. However, it is highly debatable whether this substantial focus on overseas expansion has produced the desired results.

Of course, it may have worked out better if the team hadn’t suffered the ignominy of relegation, though this was exacerbated by a string of mistakes made in the aftermath, when the club speculated in a forlorn attempt to try to get back to the top flight. As the 2008 annual report explained, “The board made a strategic decision to maintain both the level of investment and the salary level the club had supported in the Premier League to underpin its key business objective of promotion.”

"Meet Danny Wilson"

Following the recruitment of expensive players like James Beattie, Gary Naysmith and Lee Hendrie, Sheffield United were saddled with one of the highest wage bills in the Championship, one that the board admitted was “far in excess of the revenues generated by the club.” They also lavished considerable sums on a vast array of short-term contract and loan players, resulting in a huge turnover in the squad.

This was also partially as a result of numerous changes in manager, each of whom wished to sign players conducive to a different playing style. In fact, when Danny Wilson was appointed, he became the club’s fourth (permanent) manager in a crazy ten months. The inexperienced Gary Speed replaced Kevin Blackwell in August 2010, before leaving to take charge of the Welsh national team in December that year, when he was succeeded by Micky Adams.

In short, too much money was squandered on wages, loans and the managerial merry-go-round. McCabe commented, “We’ve speculated to get promotion – we’ve not succeeded.” Former chief executive, Trevor Birch, agreed, “The club has to hold its hands up and acknowledge that we got it wrong.”

"The mighty Quinn"

The other aspect of Sheffield United’s unique business model (for a football club) was the attempt to build the business through diversification. This was explained thus: “The target of our business divisions off the pitch is to generate revenue and profits to fund first team and youth development football.” The aim was to “broaden income streams and reduce risk.” That sounds mighty impressive, but the only problem was that it didn’t deliver the hoped for results.

In fairness, this is partly down to bad timing, as this strategy coincided with one of the worst economic recessions for many a year with “unprecedented turmoil in the banking and property markets.” As just one example, the impressive Copthorne hotel that was opened in January 2009 was impacted by a dramatic fall in occupancy rates in Sheffield hotels.

Although the 2011 annual report noted an improvement of £5.2 million in the bottom line, this only represented a reduction in the annual loss before tax from £18.8 million to £13.6 million. In other words, Sheffield United have lost an astonishing £32 million over the last two seasons. As the current chief executive, Julian Winter, somewhat unnecessarily stated, the club’s approach “has not worked” resulting in “significant annual losses.”

Some might point to the hefty £10 million impairment charge in 2010, but on the other hand that year also included a sizeable £10.6 million profit on player sales, mainly arising from the sales of Kyle Walker and Kyle Naughton to Tottenham plus Matthew Kilgallon to Sunderland.

Even the £5.8 million profit reported in 2009 is not all it seems, as this includes the net £18.1 million settlement from West Ham for the Tévez affair. If this exceptional item were excluded, the club would have made a £12 million loss that year, which would have meant aggregate losses of around £50 million in the past four seasons. Former chief executive, Trevor Birch pulled no punches when describing this sorry state of affairs, “Since we have been relegated, we have made losses which are unsustainable going forward.”

The only season when a genuine profit was made was unsurprisingly 2006/07, when the club was playing in the Premier League, and even that was only £0.4 million. Following relegation, the chief executive at the time, Jason Rockett, stated, “the Sheffield United business plan is not reliant on Premier League football.” At the risk of sounding like a pantomime audience, “Oh yes it is.” In fact, a few years later, McCabe confirmed this, when he said that the model now in place needed the club to be a Premier League force.

Of course, few clubs actually do make money in the very demanding world of football. Of the 24 clubs that competed in the Championship in 2010/11, only four actually reported profits (Burnley, Leeds United, Reading and Swansea City). That said, Sheffield United’s loss of £18.8 million was by some distance the worst in the division, so they cannot draw too much comfort even from that comparison.

Sheffield United is a fairly complex business to analyse by the standards of football clubs with the profit and loss statement complicated by: (a) numerous exceptional items; (b) continuing operations, discontinued operations and joint ventures; (c) non-football activities. I have tried to present this in a clear format, but however the figures are displayed, these factors still have an impact.

In this way, the 2011 results were boosted by £2.2 million profit on the sale of the hotel, though this was offset by a £0.9 million loss on the sale of assets, plus £1.3 million grant income (included in Other Operating Income) that was released following the disposal of the Blades Enterprise Centre. Without the net £2.6 million gain from these events, the total loss would have been even higher at £16.2 million.

As stated earlier, the diversification into non-football activities has not been a financial success. Since 2006, this decision has adversely impacted the financials, increasing the magnitude of Sheffield United’s losses, especially in 2010, when £13.1 million of the total £18.8 million loss came from these divisions, leaving the football club (UK) loss at “only” £5.7 million. On the other hand, the impact was considerably smaller in 2011 at only £0.6 million with football contributing almost all of the £13.6 million total loss.

This was partly due to the directors deciding to sell or dispose of these loss-making businesses. In the last couple of years, they have sold the Copthorne hotel and the Blades Enterprise Centre, though have retained options to repurchase as and when finances allow, and also disposed of their interest in Chengdu Blades. Following the downturn in commercial property, they sold their 50% interest in Blades Realty Limited, while they also sold the Thames Club and entered into an outsourcing arrangement with Compass for their conferences and events business.

Even where these divisions made operating profits, they were eaten up by high interest charges and the need to make provisions to cover lower asset values, hence the board’s decision to adopt a different approach. McCabe said that the board had “used these difficult experiences to reassess the whole way the Blades are run.” These disposals are part of that process, as they have helped reduce debt, so that the club will benefit from lower finance costs in the future (net interest payable has averaged £3.4 million over the last four years).

However, it is important to understand that even after the club has finished cleaning house the picture is still bleak. The underlying business model for the “pure” football club is broken and is only sustainable through the financial support of McCabe and his companies.

If we take 2011 as an example, the football club made a loss of £13 million on turnover of £13.4 million. Put another way, for every Pound of revenue that the club generates, it pays out two Pounds in expenses. OK, at least £4 million of that loss relates to non-cash items, such as player amortisation and depreciation, but remember that these accounts relate to last season, which was in the Championship, and revenue will be a fair bit lower in League One.

Actually, Sheffield United’s revenue has not been too shabby. At £20.5 million, it was the eighth highest of the 24 teams that competed in the Championship in 2010/11 (using 2009/10 accounts, as figures are not available for all clubs for the latest season). That’s pretty good, but is effectively even better than it appears, as revenue for six of the clubs above them was boosted by the Premier League: Portsmouth, Hull City and Burnley all played in the top flight that season, while Middlesbrough, Reading and Derby County all received £12 million parachute payments.

Excluding these factors, the Blades had the fourth highest revenue in the division, though a good chunk of that (£5.9 million) came from non-football activities. Even if that is ignored, Sheffield United’s football revenue of £14.7 million was more than acceptable in the Championship. To place that into context, it was higher than two of the three teams promoted to the Premier League in 2010/11, namely QPR and Swansea City, and only just below the third team, Norwich City.

However, revenue has plummeted by nearly 60% (£23 million) since they were in the Premier League, falling from £39 million to £16 million. The decline has come in three distinct stages: (a) the initial £7 million impact of relegation from the Premier League in 2007/08; (b) a further £12 million in 2009/10 after the parachute payments stopped; (c) £4 million in 2010/11 due to disposal of non-football businesses, mainly the hotel £1.4 million and Chengdu Blades £1.2 million.

The football business also suffered last season with gate receipts dropping £0.7 million and commercial income deteriorating by £1 million, only offset by a £0.4 million net improvement in TV money. However, even though all revenue streams have taken a hit following relegation, it is undoubtedly television that has contributed the most to the lower revenue, falling by £15.2 million from £20 million in 2006/07 to £4.8 million last season.

The influence of television on a football club’s finances is undeniable and Sheffield United are no exception. Relegation from the Premier League lead to an immediate £6 million decrease, even though the fall was cushioned by annual parachute payments of £12 million for the next two seasons. However, when these stopped in 2009/10, the club’s finances were dramatically affected.

The impact would have been even worse if the Football League distribution to all Championship clubs had not increased from £1 million to £2.5 million that season. The remaining money came from a £1.3 million solidarity payment from the Premier League plus facility fees payable each time the club was televised live. Last season’s rise was largely due to the solidarity payment being increased to £2.2 million, though this was mitigated by less money from the cup competitions.

Sheffield United will receive even less TV money this season in League One, as the central distribution and the solidarity payment are much smaller in that division, being £656,000 and £335,000 respectively, so the total earned will be only just over £1 million.

"Neill Collins - See Those Eyes"

Although there is never a good time for a football club to be relegated, it is fair to say that Sheffield United’s timing was particularly unfortunate, as they missed out on the significant growth in TV deals, e.g. West Ham received £40 million for finishing bottom of the Premier League last season compared to the Blades’ £18 million in 2007. Similarly, while their relegation was eased by £24 million of parachute payments, West Ham will receive £48 million (£16 million in each of the first two years, and £8 million in each of years three and four).

The other cloud on the horizon is the new Football League three-year Sky TV deal that kicks off in the 2012/13 season, which will be £69 million lower than the current contract at £195 million, a reduction of 26% or £23 million a season. This reflected what Football League chairman Greg Clarke called, “a challenging climate in which to negotiate television rights.” Whatever the reason, it will mean a reduction in the payments distributed to each club.

There are two ways of looking at the attendance figures at Bramall Lane. On the one hand, last season’s average of 20,632 was the eighth best in the Championship (and the 27th highest of all English clubs). On the other hand, they have been steadily falling since the peak of 30,684 in the Premier League and this season’s average to date has further shrunk to 18,373, though this is still the second best in League One, only behind neighbours Sheffield Wednesday (20,360), which highlights the commitment of the fan base. Incidentally, when they played in the top flight, the Blades had the 11th highest attendance, which is a sign of the club’s potential.

The other interesting point here is that the club’s gate receipts are low relative to the size of the crowds, as evidenced by looking at the money generated by the clubs with the ten largest attendances in the Championship in 2009/10. This shows that Sheffield United’s gate receipts of £4.9 million that season were the lowest of those ten clubs, even though their crowds were the third highest. The money further reduced to £4.2 million last season, meaning that this revenue stream had fallen 45% from the £7.6 million earned in the Premier League.

The income is partly dependent on progress in the cup competitions, so the comparatively high £6.9 million received in 2008/09 was helped by the run to the play-off final.

The club has introduced some worthy initiatives to “make attendance affordable”, such as cutting season ticket prices. A couple of years ago McCabe noted, “We’re going into a recession, and if we have to adjust our prices to keep our lifeblood here, we will.” Indeed, a recent BBC survey suggested that Sheffield United provided the fifth cheapest day out at a League One club (taking into consideration ticket, programme, pie and tea) with only Rochdale, Preston, Walsall and MK Dons costing less.

Bramall Lane is described as the world’s oldest major football stadium, having staged its first game in 1862. Obviously, it has been extensively modernised since then, though the England 2018 World Cup committee still favoured Hillsborough, home of Wednesday, as the Sheffield stadium for the unsuccessful bid. Planning consent is in place to increase the capacity from its current 32,609 to 40,000, though this has been put on hold until the club regains (and maintains) its Premier League status.

Commercial income has mirrored the performance at the gate, falling by 46% from £8.2 million in the Premier League to £4.4 million last season. Sponsorship deals are (understandably) lower in the less prestigious division, as the 2008 annual report explicitly noted, “much of this reduction was directly linked to contractual reductions arising from relegation.”

Merchandising revenue was also adversely affected by the economy with customers having less disposable income. In addition, Sheffield United had to make stock clearances, which reduced the gross retail margin from 46% in 2009 to just 2% in 2011.

"Don't sit down 'cause I've moved your hair"

The Blades have been quite innovative in their sponsorship arrangements. Their previous shirt sponsor, the Maltese Tourism Authority, was the first time a government had supported a major UK football club. Their current shirt sponsors are shared with Sheffield Wednesday with Westfield Health on the home shirts and Gilder Motor Group on the away shirts (it’s the other way round for Wednesday), as these local companies did not want to sponsor only one club for fear of appearing partisan.

United also have a deal with Nexis Holdings that will see the club receive company shares in return for its logo appearing on the back of the home shirts. It is not clear how much this deal might be worth, though Nexis has itself announced that it has suffered a “most difficult year.” Nor do we know how much Macron pay for the kit supplier deal, though this has been reported as a “seven-figure” deal.

On the cost side, the Blades’ wage bill has been one of the highest in the Championship, e.g. in 2009/10 it was the sixth largest at £19.4 million. As the 2009 annual report put it, “Make no bones, the budget Sheffield United FC has is well in excess of the majority of our competitors in the Championship.” Indeed, McCabe admitted, “Our wage bill is two to three million higher than we wish it to be.”

Last year, chief executive Julian Winter outlined he problem, “Strong support from the parent company meant United long maintained a wage bill far in excess of the revenues generated.” Although wages have been cut by £7.2 million (28%) from the £25 million peak in 2007/08 to £17.8 million, in the same period revenue has halved from £32.4 million to £16.2 million, so the wages to turnover ratio has risen (deteriorated) from 77% to a deeply worrying 110%. To place that into context, the ratio at big spending Manchester City is only slightly higher at 114%.

Of course, these are the wages (and turnover) for all divisions, but we can be reasonably sure that football accounts for the lion’s share, as a player’s wages will be substantially higher than, say, a hotel employee.

In any case, the club is painfully aware of this issue with the latest annual report stating, “We seek to drive down the player wage bill.” It goes on to explain why this is the case, “The club is no longer in a position to fund above average wages as done so in previous years.” That is one of the reasons why (relatively) high earners, such as Henderson, Yeates, Rob Kozluk and Ryan France were offloaded in the summer.

Directors’ remuneration increased from £0.6 million in 2010 to £1.1 million, though this was almost entirely due to redundancy payments of £0.5 million. In this way, the highest paid director earned £745,000 last season, though this was only £233,000 the previous year. As is the norm, the accounts do not identify who this is, but the obvious candidate is Trevor Birch, given that he resigned in May 2011.

There has been a fair bit of upheaval at the executive level in recent years with Chris Steer replacing McCabe as chairman of the football club, though the latter stays on as chairman of the PLC. The company also de-listed from AIM in January 2009 after 12 years on the stock market, due to the financial and administrative burdens.

It is instructive to look at Sheffield United’s transfer dealings over the last decade, as they form an almost perfect “game of two halves” with the club being a net purchaser (£20 million) in the five years up to season 2006/07, but a net seller (£23 million) since relegation. In fairness, the Blades have never been particularly big spenders with their transfer record being the £4 million they paid to Everton in August 2007 to secure the services of James Beattie.

The last season of major expenditure was 2006/07 when a total of £16 million was splashed out on the likes of Matthew Kilgallon, Claude Davis, Rob Hulse, Luton Shelton and Colin Kazim-Richards. There have been isolated instances of relatively high investment, e.g. Ched Evans was the most expensive acquisition in the Championship in 2009/10 at £3 million. However, the last two seasons have seen the club “strengthening” the first team almost exclusively with free transfers. In that time, they have only paid (small) fees for a couple of players: Neill Collins and Ryan Flynn.

Instead, they have opted to “throw money at too many loan players”, as McCabe said in the annual report, concluding that this approach “does not work for Sheffield United.” The chief executive concurred, “One of the lessons to be learnt from relegation is that reliance on such a high number of loan players is flawed.” In 2009/10 the club had an incredible 13 players on loan, but this was more than matched in 2010/11, when the “loan stars” included the varied talents of Marcus Bent, Andy Reid and Nyron Nosworthy amongst many others.

Net debt was cut from £57 million to £32 million in 2011 as a consequence of two steps: (a) a re-financing exercise in November 2010; (b) conversion of £17.2 million of loan notes into equity. This is obviously good news, but the fact remains that the debt is still approximately twice annual turnover, which is far from comfortable.

The re-financing resulted in the settlement of all outstanding HBOS debt through the raising of a £15.5 million loan from Santander, secured on the future receipts from West Ham in respect of the Tévez case. It is planned to repay this debt as the money is received over the next three years. In addition, the hotel assets were sold to Scarborough Partnership Limited (a McCabe company), which assumed responsibility for the remaining hotel debt.

This is important, as it has strengthened the balance sheet, though it should be noted that the financing required for property ventures was one of the reasons for the rising debt over the past few years.

"Cresswell - tricky Ricky"

Much of the debt can be described as “soft” debt, given that it is owed to McCabe’s companies. Although this is preferable to external bank debt, it would be a mistake to believe that this is problem-free, as it is not clear what would happen if his companies got into financial difficulties or if McCabe were to walk away, as has happened with benefactors at other clubs. This may be considered unlikely, because he is clearly a Sheffield United fan, but you never know.

In passing, we should note that the club also owes £0.4 million for deferred player signing-on fees plus a potential £2.1 million in transfer fees that depends on factors like number of appearances (though the accounts state that this “is not expected to be payable”).

The balance sheet now shows net assets of £6.1 million, up from £2.5 million the previous year, mainly due to £25 million of tangible fixed assets, very largely the stadium and the training ground. In addition, the players are only valued at £2.1 million in the accounts, including nothing for those developed in the Academy, while their market value in the real world is much higher - £15 million according to the respected Transfermarkt website.

"Chris Morgan - Rage Hard"

However, there are net current liabilities of £3.4 million, which is cause for some anxiety. Indeed, the accounts feel the need to mention that the McCabe family has committed sufficient working capital “to ensure that the funding of the club for the 2011/12 season is assured.” The business review explains that the company can continue as a going concern, but this assumes “that the group is able to continue raising further financing facilities, reduce costs, sourcing additional equity investment or selling assets to generate cash”, though the directors “are confident that such funds can be raised.”

That’s not exactly comforting to the club’s supporters, but it’s nothing new under the sun at Sheffield United. The cash flow statement shows that the club is cash negative before financing, though this has come down to less than £2 million in 2011 after substantial deficits in previous years. These losses have only been funded by taking on new loans, the sale of assets and the issue of share capital (either through a share offer in 2006 or the acquisition of a subsidiary in 2007).

McCabe has provided Sheffield United with plenty of financial support, examples including a £10 million loan in 2007 so that key projects could continue to be funded in spite of relegation and, of course, the recent conversion of a £17 million loan into equity. In total, he has probably ploughed more than £50 million into the club via share issues and loans.

However, there have been concerns that in some way his companies have benefited from the various transactions made with the club. For example, the loans made to the club have been at a relatively high rate of interest (e.g. 10%, 8%, LIBOR + 4%), producing £4.3 million of interest payments to related parties in the last four years. In addition, some asset sales to his companies have either been at a loss, e.g. £1.4 million loss on disposal of the Blades Enterprise Centre to Scarborough Enterprise Centre Limited, or at a low market value, e.g. the hotel to Scarborough Partnership Ltd.

"Tonight, Matthew, I'm going to be..."

There is little doubt that he has made mistakes, but these have also hurt him financially. If the economy had not tanked, then his strategy might just have worked, but the fact is that it did not, which has cost both him and the club.

The question is whether he will continue to support Sheffield United financially going forward. He has already relinquished the role of chairman of the football club, but he claimed that was due to being based in Brussels rather than the poor financial results, and he obviously maintains an interest as an owner. The indications are that he will not want to put in as much money as in the past. A couple of years ago, Trevor Birch said, “McCabe has funded those (high) costs and he is now saying ‘enough is enough’. The club has to stand on its own two feet.”

Reading between the lines, it looks like McCabe would make an exit if possible. His property company has suffered in the recession, his grand plan for Sheffield United has failed and he risks becoming a hate figure unless performances on the pitch improve. However, finding new investment is easier said than done. The club appointed bankers to look at a possible sale back in May 2010 with the annual report that year mentioning discussions with two prospects, but no concrete offer has been received to date.

"It was this wide"

As a supporter McCabe is unlikely to consider external investment unless it is in Sheffield United’s long-term interests, which should re-assure any fans that were unsettled by the “Dispatches” television documentary that focused on mysterious Asian investors looking to make a quick buck from investing into English clubs and featured a visit to Bramall Lane.

The latest annual report says that “once the club has become self sufficient financially it will become a more attractive option” to potential investors, which is undoubtedly true, though this does rather beg the question: will they be able to become sustainable through football income alone, especially in League One?

What would be more appealing to investors, I would have thought, is the possibility of Sheffield United at some stage returning to the lucrative Premier League. This might seem like pie in the sky at the moment, but it is the club’s stated “medium term objective”, even though they admit that the introduction of higher, four-year parachute payments makes this task even more difficult. The size of the prize is, however, clear as seen by a comparison between revenues generated in the different leagues with Blackburn’s £58 million in the Premier League being substantially higher than Sheffield United’s (football) revenue of £13 million in the Championship.

Of course, it’s a long way back from the third tier, so the Blades have to (ahem) cut their cloth according to a far lower budget for the time being. As they stated in the annual report, “With the reality of life in League One and football’s new Financial Fair Play Regulations, it is essential for the long term health of Sheffield United that the club now becomes financially self sufficient.”

"Michael Doyle - when Irish eyes are smiling"

By the 2012/13 season, that division’s Salary Cost Management Protocol will not allow clubs to spend more than 55% of their turnover on player wages, which implies some serious cost cutting at Bramall Lane if they don’t manage to gain promotion.

Like many other clubs, they may have to place their trust in youth. Fortunately, they have an excellent Academy set-up, which is run by former defender John Pemberton, who succeeded the respected Ron Reid in 2010. Last season a talented young team reached the FA Youth Cup final, only succumbing to Manchester United. It may be too early for those players to make an impact in League One, but the club has a good record of progressing talent into its first team, most notably Harry Maguire. This was endorsed by McCabe, who said, “There will have to be changes in player personnel, young players will have to be given their opportunity at the right time.”

However, the price of success is that larger clubs will come sniffing around, leading to the departure of some good prospects. This was exactly what happened last summer with the sale of striker Jordan Slew to Blackburn Rovers for around £1 million. Danny Wilson conceded that the sale was drive by financial needs.

"Hurry up, Harry"

The club faces a difficult balancing act, as they struggle to improve their finances while targeting promotion. The task of eradicating their large losses will be made even more challenging with the lower revenue in League One, which will inevitably mean slashing the wage bill, probably by off-loading some of the higher earners, such as the prolific Ched Evans, as there are few non-football assets left to sell – unless McCabe arranges a sale and leaseback of the stadium. That will obviously make the manager’s job even harder, though it’s not impossible to achieve both objectives, as Southampton demonstrated last season.

We will have to wait until the end of the season to see whether Sheffield United take the first step back to the big time. There’s little doubt that they have the potential to reach the Premier League, as they play in one of England’s largest cities in a good stadium in front of good-sized crowds. However, they still have to produce the results on the pitch if they want to banish the Steel City blues.

A very interesting read. It explains in a lot of detail what most of us already knew. McCabe has tried to make the club a success and ploughed millions in to the club doing so. For people to have a go at him and spout "Judas" comments is incredibly unfair. Bad timing was the main reason for the plan not working. Some bad decsisons were made along the way but all with the best intentions!

A very interesting article but I just have a couple of minor quibbles:-1) Many Blades fans didn't want Danny Wilson because of doubts over his ability rather than his links with Sheffield Wednesday. So far, he is doing an excellent job and proving his doubters wrong.2) The transfer valuations on www.transfermarkt.co.uk are clearly nonsense (e.g. £50K for Maguire, £1.1M for Collins!). These wild guesstimates have no place in an otherwise authoritative article on a clubs finances.Other than that thanks for a great read and an excellent summary of the facts.

Transfer valuations are always questionable whatever the source. I have considered taking the cash payments from club accounts, but that's also a little misleading, as many transfers have stage payments over a number of years.

Normally, I prefer to use the Transferleague website, but that only really focuses on the Premier League, so I use Transfermarkt as an alternative. Some large clubs actually use their figures in the commentary in their annual report, e.g. Lyon.

Great stuff as always. That academy team were very good against man utd in the first leg of the final, and they look like they should be able to knock four or five first team players out of that group, but they've already sold the star of the team Jordan slew to blackburn for a million quid, which isn't promising.

BTW I see that chelsea have announced their financial results for the season, well their turnover, and their loss, but is there any sign of the longer version of the accounts, or are they too horrible to publish?

Chelsea have not yet published their detailed accounts, though they have made it known that around £30m of the loss is due to "exceptional" payments, namely the pay-off to Ancelotti and his team plus the payment to Porto to secure AVB's services. Whether these can be considered genuinely exceptional, when they have made many similar payments in previous years is another question.

You state the value of the Nexis Holdings shares sponsorship is unknown - No it isnt. The value is clearly nothing as Nexis are a scam company. They shouldnt have been allowed in the carpark.

Secondly, take alook at the parent companys' (Scarborough) last set of accounts. They are truly horrendous ( loss of over £100m). The next set are due soon, and i dount the world property market is any better now.

Whilst ultimately this article doesnt tell us much different to the overwhelming message of the situation, I.e. that everything revolves around what Mccabe wants to do with his money, this is still a cracking read with brilliant analysis.

The PLC is the holding company, but owns 100% of The Sheffield United Football Club, as well as numerous other subsidiaries. To get the full picture of what has happened at Sheffield United, you really need to look at the PLC. Certainly, that is what the club analyses when its website reviews the financials.

Excellent and balanced interpretation of our strategy an finances. In was aching for McCabes master plan to work, I really did believe in it. But your analysis really hits home how badly it has failed. Promotion this year seems vital then. Or the stars stream through the exit door in the summer and the Job of gaining promotion with juniors becomes soo much harder...

I agree with nearly all of the points to come out of this excellent article.However what is not debated in depth is the salary of Trevor Birch who was a complete diaster. £745,000 for allocating excessive wages to very average players and sanctioning the signings of very poor loan players, makes you wonder, have the club got anyone on the Board with any finaancial accumem?

The Blades will certainly be in trouble if they don't achieve promotion this time around. It is time football clubs were stopped from spending more than they earn, football has to become sustainable to survive.

Very interesting article. I am concerned that failure in Gaining promotion to league one Will result in us selling our best players... Ie Quinn, Lowton, mcdonald, Evans and relying on juniors and average league one top end performers such as Hoskins and cresswell. Please go up blades and retain Evans. Though I can see Norwich or even Swansea coming in for him.

It seems as though little was learned from the relegation from the PL where the club spent too much on wages and were saved by the West Ham money & the sale of Naughton, Walker, Cotterill & Killgallon. The wage bill in L1 last season was the largest by a distance but the team performed poorly relative to its wage bill compared to Charlton, Sheff Wed, Huddersfield, MK & Stevenage.

The club need to sell everyone that is saleable & release any other players on Championship wages and play the kids and hope to stay up. If they do, they can build from there & hopefully the fans will stick with them.

If ever there was a team that appears to be in serious brown stuff - it's this one. The Blades are like an experiment in (football) global domination gone wrong. But then I read something almost unbelievable on their website recently - yet another "tie up" with an overseas team.

This is a fascinating and insightful article, and not something most Blades will be used to when it comes to critique of our club - the local press in Sheffield is particularly poor in this regard.

I was wondering if you could perhaps post a follow-up piece on the situation? As we embark on our third season in League One, there is a genuine worry amongst fans that we may not be strong enough, on or off the pitch, to compete for a play-off position.

Also, I would be very interested to know your thoughts on the developments at our rivals, Sheffield Wednesday. Milan Mandarić saved the club from oblivion after decades of financial mismanagement, though it isn't entirely clear how he achieved this, but is now reportedly ready to sell up.

Praise for The Swiss Ramble

"Blogger of the Year 2013 - It’s testament to the effect that Kieron has had on the blogosphere that so many fans take his word as gospel. Putting to use his career in the world of finance, his insights into balance sheets and simple explanations of complex ideas appeal to the hardcore financial whizz and casual fan alike." - The Football Supporters' Federation